Be aware of employee classifications in California

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Businesses small or large in California classify their workers either as full time, part time, temporary or independent contractors. Worker classification can be tricky, and employers must know how to navigate in the maze of legislations to stay out of trouble.

Part-time workers are employees working less than 32 hours a week and not eligible for benefits such as health, retirement and other benefits bestowed to full-time regular employees. These workers may accrue vacation and sick time. These workers are issued a W2 by the employer at the end of the year. Part-time workers are usually non-exempt and receive hourly wages.

Full-time employees are employees working usually 40 hours or more per week. These could be further classified as full-time exempt and receive salaried wages or as full-time non-exempt and receive hourly wages. Non-exempt employees must be paid overtime in California if working over eight hours in a day or 40 hours in a week. Exempt employees must be paid twice the prevailing minimum wage. Full-time employees after probationary period are eligible for benefits such as health, dental, vision, life insurance, 401K matching, employee stock purchase plan, vacation time, sick time and much more. These workers are issued a W2 by the employer at the end of the year.

Temporary employees are workers who are not on company payroll but are employed under a staffing agency to meet temporary employment needs for the client company. Temporary workers are usually hired to meet seasonal or project-based demand for limited time. These workers may accrue some benefits offered by the staffing agency. Some of the big staffing agencies are Manpower, Kimco, AppleOne, Express Employment Professionals etc. The staffing agency or the hiring agency issues the W2 to these workers at the year end and pays for their workers compensation insurance.

Independent contractors cannot be classified as employees, but these workers are people with their own business who offer services to employers. Independent contractors must pay their own business insurance, Social Security and Medicare taxes and usually are not eligible for any benefits. Many small businesses wrongly classify their employees as independent contractors to avoid payroll taxes, overtime pay and workers compensation. More details on the new California law, Assembly Bill 5, with details on the ABC test for classifying employees can be found in the next article.

Paul Sethi is the president of Cognizant HR and Tax serving small businesses with their HR needs like payroll, compliance audits, employee handbooks, investigations, training, taxes and more. He brings over 10 years in human resources field and is SHRM certified professional with MBA. Paul is not an attorney and this article is not meant to be legal advice or notice. Sethi can be reached via email at cognizant.hr.tax@gmail.com.